Feds to toughen rules on fake IT

Federal acquisition executives are considering tightening the controls on their information technology contractors’ global supply chains to improve security and reduce the amount of counterfeit products. But there is no general agreement yet on how to do it.

“We hear a lot of talk about trusted supply chains,” said John Slye, a principal analyst at market research firm Input. “People have woken up to the idea that securing the supply chain is exceedingly complex.”

The growing interest in supply chain security in the public and private sectors is being driven by high-profile incidents in which counterfeit computer hardware has found its way into federal agencies. For example, the FBI announced in May that it had seized more than 3,500 fake Cisco Systems network components, including pieces that military services and their contractors might have used.

One of the goals of a secure supply chain is the ability to trace an item to its manufacturer. “The Defense Department, for reasons of operational security, needs comfort with its suppliers,” said Ray Bjorklund, senior vice president and chief knowledge officer at FedSources, a research firm. “They want to trace back goods to the point of origin.”

The government also wants transparency, said James Jay Carafano, a defense and national security expert at the Heritage Foundation. The more transparency, the more confidence an agency has in its suppliers.

“With more transparency, you won’t need to inspect as much, so there is less friction,” Carafano said.

But federal agencies might discover they have less competition for contracts when they take greater control over suppliers, particularly when those suppliers sign deals with specific subcontractors, said Alan Chvotkin, senior vice president and counsel at the Professional Services Council.

“If you lock down the supply chain, that implies you might not use full-and-open competition,” Chvotkin said. “Is that acceptable?”

IT products are the backbone of many federal systems, such as air traffic control and military communications. Counterfeit products create a risk for national security because they frequently fall short of the quality standards for genuine equipment.

Experts say counterfeit products fail at higher rates, sometimes within weeks or months of installation. And when they break, entire systems can shut down. Furthermore, bogus software might contain malicious code that hackers could exploit to gain access to intelligence or other data.

In November, federal acquisition authorities issued a proposal to revise the Federal Acquisition Regulation to require computer and IT vendors to vouch for the authenticity of their products.

Under the proposed rule, the government would require IT contractors to certify that equipment is authentic. Officials are soliciting ideas for how to hold contractors responsible if products prove to be fakes. They’re also asking whether they should expand the rule to include other items sold to agencies and whether to apply it to components of a system.

But that proposal could have negative consequences and increase costs for vendors.

“It is a good idea to have the federal government buying authentic products, but you have to make sure it is a reasonable process,” Chvotkin said.

The question is to what extent officials will impose investigative requirements on vendors to oversee their suppliers. The process could dramatically raise costs and reduce competition.

“The risks and exposure for contractors [are] huge,” Chvotkin said.

Meanwhile, companies and agencies are working on various ideas to improve supply chain security.

Some large defense contractors are using federated identity management and public-key infrastructures (PKIs) to better control access to sensitive systems. For example, Northrop Grumman is preparing to issue its new OneBadge identification cards to thousands of employees in an effort to secure its global supply chain, said Keith Ward, the company’s director of enterprise security and identity management.

The cards and policies meet federal and DOD standards, and the company expects to be one of the first federal contractors to use a centralized PKI as part of its identity assurance program, Ward said. Continued globalization, decentralization of defense suppliers and an increase in cyberthreats are driving the changes.

“Together, these factors bring immense pressure,” Ward said. “This reality drives demand for robust, scalable and proven strategies for securing information and assuring identities.”

In a multinational effort to secure supply chains, DOD, the United Kingdom’s Ministry of Defence and various contractors are working on the Transglobal Secure Collaboration Program. They’re testing ways to secure e-mail traffic in a supply chain, and next year, they plan to test a system to share documents using digital credentials, Ward said.

In addition, several Homeland Security Department agencies are launching programs to register and evaluate shippers. Although the efforts are broad, experts say they are having an impact on how the government buys IT goods and services.

But Chvotkin said the federated trust model works best for communications and intellectual property and does not work as well for hardware.
“It is one of several emerging solutions that has potential,” he said, adding that experts haven’t agreed on a single solution for identity assurance.

Meanwhile, government and industry will continue searching for the right solution because officials agree that the widespread availability of counterfeit IT products presents a multidimensional threat.